Is It Time to Convert to the Google Price Index?

Month after month, hundreds of government workers descend upon
23,000 retailers and businesses in 90 U.S. cities to jot down prices
for products ranging from cereal to surgical procedures,
funneling the data into gigantic spreadsheets that the government
then manipulates and condenses into one all-important number: the
Consumer Price Index. By consulting the CPI, the government can measure
inflation and the country's economic health by understanding how much
more a consumer needs to spend each month to purchase the same goods.

Annie Lowrey details this process at Slate, only to wonder: is it high time the government update its methods?

The
reigning methodology is, well, clunky. It costs Washington around $234
million a year to get all those people to go and bear witness to a
$1.57 price increase in a packet of tube socks and then to massage
those individual data points down to one number. Moreover, there is a
weekslong lag between the checkers tallying up the numbers and the
government announcing the changes: The inflation measure comes out only
12 times a year, though prices change, sometimes dramatically, all the
time. Plus, the methodology is archaic, given that we live in the
Internet age. Prices are easily available online and a lot of shopping
happens on the Web rather than in stores.

Lowrey
lists a couple of alternative approaches, including the "Google Price
Index" developed by the company's chief economist, Hal Varian. The index
leverages Google's database of web prices to provide a "constantly
updated measure of price changes and inflation"--one that has tracked the CPI
closely, though it indicated periods of deflation
when the CPI didn't.

Yet the CPI also has redeeming qualities, Lowrey concedes: "It's
a stable, tested measure, consistent over time, since its methodology
doesn't change much. Moreover, and somewhat remarkably, the
[alternative] indices actually seem to confirm the accuracy of the
old-fashioned CPI, tracking it closely rather than showing it to be
off-base."

"Ultimately," she adds, "there is a good argument for more inflation measures, not just better or newer ones."

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